Design, Price Are Keys To Success For Hyundai

A Hyundai Genesis Coupe is on display in a showroom in Glendale, Calif., last January.

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Despite a sluggish economy in the U.S., it's been a really good year for Hyundai. The Korean automaker is on track to sell more cars this year than ever before, and it has seen its share of the U.S. market more than double in the past decade.

At first glance, Hyundai may appear to be resorting to slick marketing gimmicks. For instance, the company will guarantee the price of your car, not now but when you trade it in.

The deal that really got people talking from the last recession featured an advertisement that said, "if in the next year, you lose your income, we'll let you return it. That's the Hyundai assurance. An automaker that's got your back. Isn't that a nice change?"

Those kinds of newfangled gimmicks ended up not really costing the company much money, and they worked. A lot of people bought a lot of Hyundais.

But Jessica Caldwell, a senior analyst with Edmunds.com, says Hyundai is operating from a much older playbook. "What Hyundai did was nothing new," she says. "They developed the oldest formula in the book: Have a good design at a good price."

"That, to me, is Carmaking 101," she says. "You would think that it's not that hard to figure out. And I just think it's interesting that people think that Hyundai's success is so surprising. But, if you look at it, it's not at all. I mean, of course people are going to buy something that looks good and is not expensive. I think, regardless if you're buying a refrigerator, a shirt, or a computer, that formula is always going to work."

That's the formula Hyundai follows now.

David Champion, director of automobile testing for Consumer Reports, describes Hyundai as a company "back from the doldrums."

More than 10 years ago, Champion would have counted Hyundai at or near the bottom of the car barrel. "If you saw one for sale don't even consider it," he says. "They were pretty poor vehicles overall and their reliability was terrible."

He says it took quite a while for Hyundai to realize that if it didn't fix its problem with reliability, it couldn't play cars with the big boys in the U.S.

About a decade ago, Hyundai underwent a massive restructuring; about seven years ago John Krafcik came to Hyundai Motor America. He's now the CEO.

"One key difference with our management structure is we see a certain level of leanness as a virtue in and of itself," Krafcik says.

He learned the car industry from two of the least-lean car companies: He began his career at Toyota, then went to Ford. He eventually became chief engineer for Ford's big SUVs and trucks.

Krafcik says a company like Hyundai can be more innovative because it just doesn't have as many layers. For instance he has five vice presidents under him.

"Up the road from us is another automaker and they have about 40 vice presidents," he says. "And when you think about the speed and agility, we can have a staff meeting in my office at the drop of a hat."

Krafcik says having fewer chefs in the kitchen means you can cook up more interesting cars and marketing ideas — and when something goes wrong it's clear who's responsible.

Five years ago, Krafcik says, a Hyundai executive would have had an answer to the question of which companies it wanted to beat or be like. Now, that's not what he really cares about.

"If the whole industry was moving to the right seven or eight years ago, Hyundai would have probably moved to the right with them," Krafcik says. "Today when the whole industry moves to the right, we'll look to the right. But we'll spend more time looking to the left and try to understand if there is some other opportunity, some other way to differentiate our position. So that's one of the biggest changes we've had these past few years."

So which car company should be scared of Hyundai? The answer, according to Experian Automotive, which tracks car sales, is not a short list. General Motors, Ford, Chrysler, Toyota, Honda and Nissan have all lost customers by the tens of thousands to the upstart from Korea.